BofA flags ECB December hike as energy shock fuels inflation fears
Bank of America Global Research now expects the European Central Bank to raise interest rates by 25 basis points in December, citing surging energy prices that will prolong euro zone inflation above the ECB’s 2% target.
Source: MarketScreener · InvestorDaily · September 24, 2026 at 11:32 AM · AI-assisted report
Single-sourceKUALA LUMPUR, 24 SEPTEMBER 2026 —
Bank of America Global Research now expects the European Central Bank to raise interest rates by 25 basis points in December, citing surging energy prices that will prolong euro zone inflation above the ECB’s 2% target.
Market Impact
The revision comes as gas and oil prices climb amid persistent geopolitical tensions, particularly over Iran, threatening to keep energy markets tight through winter. The ECB joins the US Federal Reserve and Bank of Japan in tightening policy this month, though BofA warns that stronger-than-expected growth in early 2026 remains volatile. Financial markets assign a 93% probability to a December hike, according to LSEG data.
Energy shock reshapes BoE outlook BofA also revised its forecast for the Bank of England, now expecting a 25-basis-point rate hike in November followed by another in February 2027—a shift from its prior call for unchanged rates until a cut in November 2027. The move reflects rising oil and gas prices, which the ECB, Barclays, UBS, and J.P. Morgan have also cited as inflation risks.
The BoE’s stance contrasts with other major central banks, which raised rates this month. BofA economists note that while energy-driven inflation may not yet spark broad second-round effects, upside risks persist. Markets price in a 67% chance of a November hike, with another expected in December.
Fed poised for first hike since 2023 Separately, the US Federal Reserve is expected to raise rates by 25 basis points this week, its first hike since 2023, signaling further tightening ahead. RBC Capital Markets and other analysts anticipate additional hikes as inflation pressures linger.
Market reaction BofA’s revised outlook underscores how energy volatility is forcing central banks to reassess policy. While the ECB and BoE now face tighter conditions, BofA cautions that markets may be overestimating the need for aggressive hikes, predicting only two increases before cuts resume in 2028, bringing the BoE rate to 3.5%.
Malaysian relevance For Malaysian markets, rising global rates—particularly in Europe and the UK—could tighten financing conditions for exporters and multinationals with dollar-denominated debt, while higher energy costs may weigh on regional inflation and trade flows. Commodity-linked Malaysian firms could see mixed effects: energy price spikes may boost revenues for oil and gas players, but broader inflation risks could pressure consumer-driven sectors.
Related: Bank of America